It's no secret that things are really bad out there. The pace of the economic recovery after the world emerged from the pandemic has not nearly been what it was expected to be. If anything, the situation has become worse, as the demand and supply side challenges continue to exist and consequently, prices are rising across the board.
Inflation is at its highest in some of the leading economies of the world. Central banks across the globe are hiking interest rates in efforts to cool the economy. These steps don't appear to be working. Continuous rate hikes have done little to control spiralling inflation. There are now fears that the world might be on the verge of a full-blown recession. As for how long it may last is anybody's guess right now.
So it wasn't surprising to hear that Samsung is struggling to sell as many smartphones as it had initially expected this year. A report from Korea highlighted that there are 50 million unsold Galaxy smartphones stuck with Samsung's distributors. Normally, this number is below 10% of the company's total expected smartphone shipments for the year. It's now at 18% of Samsung's 2022 target.
What was surprising was that the vast majority of these unsold smartphones are from Samsung's mid-range series. The company's Galaxy A series devices in particular, which happen to be some of the best cheap Android phones, make up a big chunk of that unsold stock. You would have expected the premium and flagship devices to be in the lead here, but apparently that's not the case.
This is a bad omen for the market. Affordable devices are volume leaders. Samsung's best-selling smartphone worldwide last year wasn't one of its foldables or Galaxy S flagships. It was the Galaxy A12 and Samsung sold almost 52 million units of it.
Even though profit margins are lower, these are the devices that sell in the tens of millions of units across the globe. These are also the devices that make it possible for people with lower disposable incomes and in disadvantaged markets across the globe to own a smartphone.
In this day and age, smartphones play a major role in lifting up communities. They can be used to deliver remote education and healthcare, enable people to be informed of their rights, allow them to start a business, and more. However, when people are finding it difficult to make ends meet, buying a smartphone will never have the same priority as putting food on the table.
A significant chunk of unsold affordably priced smartphones also highlights systematic inequality. It's always those who are at the bottom of the economic ladder that get hit the hardest when the economy takes a turn for the worse. People in higher income groups with more disposable income are able to weather the storm. This goes to show why there hasn't been such a significant impact on premium smartphone sales.
You can bet that if Samsung is finding it difficult to sell cheap Android phones, others are too. Remember, Samsung sells the most smartphones of any manufacturer across the globe. It has significant brand presence in emerging markets where the vast majority of buyers opt for affordable devices. It leads all competitors by a significant margin and maintains a dominant position in key markets across Asia, Latin America, North Africa, and the Middle East.
There's a lot that's going on around the world that affects smartphone demand, apart from the obvious economic woes. Lockdowns in China have shrunk supplies. Ocean freight rates are the highest they've ever been. The Russia and Ukraine conflict has Europe and indeed the world on the edge. The world is in a commodity super cycle and that has reduced the purchasing power globally.
Samsung has been expecting the fallout from all of these challenges. The company has reportedly reduced its smartphone production by 30 million units. It previously expected to ship over 300 million units in 2022 and it's now targeting 270 million units. The way things are right now, it would be a miracle if it's able to hit that target.
It's difficult to say if the situation is going to improve in the short term. There are no positive indicators currently. Much like how the Big Mac Index is a measure of whether global currencies are at the correct level, consider Samsung's unsold inventory as a measure of what the future may look like for the smartphone market. Right now, it's looking pretty bleak.
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